ECB’s Stark blasts ’vested interests’ in US, UK
Wednesday, May 18, 2011
LAGONISI, Greece (AP) — The European Central Bank’s chief economist said a Greek debt restructuring would be a “recipe for catastrophe” as he blamed “vested interests” in Britain and the United States for fueling market pressure on the country’s financial markets.
Juergen Stark told a financial conference in Greece Wednesday that the struggling eurozone country’s “debt sustainability is insured” if it fully complies with its internationally monitored austerity program.
Asked about the markets’ hostility to Greek efforts, Stark said: “This is not the view of all market participants, to be very clear. This is a discussion triggered from London and New York. I don’t know what is behind it — vested interests, people topping their books and so on. So it’s more complicated than just (saying) what markets expect.”
Greece’s Socialist government was told by the European Union this week to take urgent measures to keep its austerity program on target, as part of its commitments for the 110 billion ($156 billion) package of bailout loans it is receiving from EU countries and the International Monetary Fund.
The country remains frozen out of bond markets by sky-high interest rates as investors fret that Greece may eventually have to restructure its debt, which set to top 150 percent of gross domestic product this year.
Stark said the restructuring option had not been properly thought through.
“Debt restructuring would wipe out part or all capital of Greek banks,” he said. “So it would be a recipe for catastrophe.”
He urged Greece to “double its effort” to speed up structural reforms that critics say have been stagnating.
“If the (EU-IMF) program is implemented one-to-one — I’m very clear — then debt sustainability is insured,” he said. “And Greece is solvent. This is an important message.”
International debt monitors are currently in Greece to inspect the progress of cost-cutting reforms, and again warned that Greece needed to do more work to avoid sliding off target.
“We are in a situation where if we do not get this acceleration of strucural reforms, the (budget) deficit will get entrenched at where it is now, around 10 percent,” IMF monitor Poul Thomsen told the conference.
Thomsen aknowledged pain was unavoidable given the country’s massive fiscal adjustmemnt.
“It’s impossible to deal wiith a deficit of 15.5 percent of GDP without having a recession,” he said. “People are dreaming if they think you can do this kind of adjustment without having a recession.”
Theodora Tongas contributed to this report.
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